1 Report No 1 (2003-2004) to the Storting, 2004 National Budget, Ministry of Finance.
The infusion of petroleum revenue into the Norwegian economy has contributed to reducing employment in the sector exposed to competition, thus releasing manpower for use in the production of various services, hereunder within the health and care sector. However, it is important to prevent such trend from developing too fast or too far. Not least because it will prove relatively difficult to replace economic activity sheltered from competition with new, innovative ventures that are competitive in international markets. Industry that are less exposed to international competition may impede the
economy’s capacity for growth. Businesses faced with international competition depend to a far greater extent on innovating and being efficient to succeed in the marketplace.
Human capital in the form of manpower and competency makes up the main part of the national wealth of Norway, and how it is used is of decisive importance to our ability to innovate and to create wealth. The robust growth of the Norwegian economy throughout the 1990s resulted in a very high employment ratio and low unemployment.
However, sickness absence, recipients of disability benefit, and people taking early retirement, all increased significantly over the same period, thus reducing the available workforce. The availability of manpower will be considerably lower in coming years. This takes place concurrently with a steep increase in manpower needs, in particular within the health and care sector. Consequently, modernisation
of the public sector is of decisive importance to safeguarding the delivery of good public services, without the sector exposed to competition being depleted of more manpower than is compatible with sustaining a sufficiently large such sector.
The level of education in Norway increased during the 1990s – and is now very high in international terms. Nevertheless, there is a significant shortfall as far as certain types of qualified manpower are concerned. The OECD recommends that higher education be increasingly tuned into the needs of economic life. Science and technology subjects are of particular importance in this context. Moreover, the quality and capacity of various types of education are identified as being more important than a continued increase in the general level of education.2 The competitiveness of Norwegian industries in terms of costs has deteriorated in recent years. This is partly a reflection of distinctly higher wage growth than that of our main trading partners, and partly the result of the appreciation of the Norwegian krone over the last few years, which appreciation has not been fully reversed. Increasing the productivity of business and industry exposed to competition is therefore an important challenge. It gives cause for concern, from this perspective, that Norwegian businesses innovate less than those of several other European countries (see Chart 2.2)3. Moreover, about half of Norwegian businesses do
not deem innovation and creativity to be necessities,
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2 OECD (2001): “Education Policy Review – Lifelong Learning in Norway”.
3 Innovation Survey, Statistics Norway, 2003.
0 5 10 15 20 25
2000 2010 2020 2030
Pensions
Real return on the Petroleum Fund
Chart 2.1 Expected real return on the Petroleum Fund and expenditure on old age and disability pensions, as a share of GDP (%).
which may suggest that many Norwegian businesses operate within protected markets
characterised by little competition. At the same time, Norwegian investment in research and development (R&D) is considerably below the average within the OECD area.
There are considerable regional differences as regards the focus on development, growth and innovation. Differences in terms of industrial structure and distances to important markets and relevant knowledge centres may also translate into different innovation capabilities. In addition, continued conversion from capital- and labour-intensive industries to more knowledge-labour-intensive industries may result in a lower level of economic activity in rural areas.
Given the right prioritisation in coming years, Norway is well placed to succeed in a knowledge-based global economy. The country enjoys a solid
and stable economy. Considerable investment has been made in terms of research, education and physical infrastructure. The country has good access to natural resources that offer considerable potential for processing industry. ICT is extensively used by enterprises, as well as by the population in general. Moreover, Norwegian trade and industry is characterised by trust and good cooperation internally within businesses, as well as between employer and employee organisations.
An economic policy that contributes to stable development in terms of production and employment is a necessary, but not a sufficient, condition for safeguarding the competitiveness of Norwegian industry, and the current level of welfare, over time. Businesses and industries must be offered scope for developing long-term
competitive advantage. Pro-active policies aimed at improving the innovation capability of Norwegian businesses are keys to facing this challenge.
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Norway Sweden
Finlan d
The Netherlan ds
Denmark Icelan
d
Manufacturing Services sector
Chart 2.2 Turnover of new or significantly improved products as a share of total turnover
The Norwegian economy is undergoing continuous change. Some businesses and sectors are growing, whilst others are becoming smaller. Innovation is the strategic response of businesses faced with increased competition and a need for adaptation.
Innovation offers new and better products and services, increased profitability, and a foundation for long-term growth.
Innovative businesses are businesses undergoing learning. They are businesses that develop or obtain the competency necessary for renewal, whether from customers and suppliers, from various public or private knowledge institutions, from private consultants, or from the public policy instrument system. Individuals and businesses are responsible for, and the driving force behind, any process of innovation. However, public authorities
have an important role to play in facilitating wealth creation in general and innovation in particular.
3.1 Innovation
Innovation may refer to a new product, a new service, a new production process, application or organisational structure, which is launched in the marketplace or made use of in production, for the purpose of generating economic value. Innovation is based on new knowledge and new combinations of existing knowledge. New knowledge may be gleaned from practical experience or generated through systematic research and development, and is reflected in gradual modifications and
improvements, or in more extensive and radical innovations. The degree of diffusion of innovations in society is of critical importance to a country’s innovation capability.